Think twice before providing clients with “comfort letters”

In Comfort lettera service-oriented profession like accounting, CPAs typically want to help their clients in any way possible. While we strive to be “trusted advisors”, it’s important to be aware of situations that may put our livelihood at risk. One of those situations is providing “comfort letters” to our clients.

A comfort letter is a verification document most often requested to verify the solvency or creditworthiness of a client to a bank or regulatory agency. After all, who better to verify these topics than a CPA, right? Think again. In some cases, accounting standards prohibit providing comfort letters to clients, particularly when it comes to solvency-related issues. Non-solvency related topics, like requests related to adoption, health insurance or state taxing authorities, may also be forbidden by your liability insurance. As such, it’s imperative to do your due diligence on any verification request that comes your way. Putting yourself and your practice in a risky liability situation that may result in sanctions or loss of license simply is not worth it.

So if you find a comfort letter is not appropriate, what alternatives can you offer your client? According to AICPA Technical Practice Aids on lender comfort letters, an accountant may provide a client with various professional services related to the request including an audit, review, examination or compilation of financial statements, pro forma or prospective financial information. Choosing one of these options can help you serve your client in a way that does not put your practice at risk.

To learn more, visit the AICPA’s Financial Reporting Center.